We use several frameworks to make decisions on what and how we invest. These frameworks give us an angle we can use to approach each investment. We briefly describe each of these below.
Framework 1 – ICETEA
The ICETEA framework we use for investing is usually the first one we use prior to a deeper dive of due diligence on an early stage investing opportunity. It’s primarily used to assess the quality of a founder and his/her idea. It goes a little something like this:
- Innovative? – Is the business idea new / novel? How is it different from existing offerings?
- Credible? – Does the founder have credibility? Have they shown they can get credible investors/advisors/employees on board?
- Execution? – Have the founders proven they are able to get things done in the past? Do they have a plan for their current business?
- Traction? – Has the business achieved any traction, if so, what traction in revenue terms, user signups or letters of intent?
- Experience? – Do the founders have entrepreneurial experience or expertise? Have they succeeded in the past?
- Awesome? – Are the founders the kind of people that just have that special or certain vibe to succeed?
Finally, how is each founding team member looking across each part of ICETEA? If weak in one area, the rest of the team needs to compensate or be stronger in other areas.
Framework 2 – Gambles
The second framework we use is assessing opportunities that are largely gambles. We ask ourselves the following types of questions:
- What particular hypothesis does our conviction rest upon? If we are not certain about certain areas of the business, how can we be sure that the one standout factor is worth gambling on?
- Is it the team, the market, or is there a growth hack of massive scale. If so, what is it that makes this opportunity irresistible? The more diverse the bets across the business, and for different reasons by different investors, the less concentrated the belief and potentially the more resilient the startup.
- Is a highly reputed investor behind the core bet in a similar or analogous space? Core-bets make or break the startup.
The Gamble framework is a tough one to use as it’s easy to make an emotional response. Thus, we tend to extract as much data we can at the micro and macro level before making a decision on investment opportunities that seem more like gambles.
Framework 3 – FUN
Our third framework is what we use when we look investments for fun startups. What are fun startups? Aren’t they all fun? No! Fun startups are those startups that provide a highly addictive experience to their end-users. We look at usage related metrics to determine how fun and / or addiction these businesses are. Metrics that are important with this framework are end-user average session time spent onsite or using an app, number of unique sessions per day or month, user growth histories, and paid versus unpaid users.
Framework 4 – Future Focused
If a company is trying to build an offering that results in a better future for everyone and / or the planet, that’s something we’re willing to look at. Of course, not all future focused companies have a profit vision in the short or medium term, however, accurate forecasts can hopefully provide a good perspective on how the business can achieve profitability in the long-term if it’s purely altruistic in intent at first.
Conclusion
Hopefully this provided you with an idea of how we perform a pre-diligence check on investment opportunities we receive. Having a perspective on these will hopefully help you calibrate your executive summaries or pitch decks a little better when reaching out to investors.